LYNAS CORPORATION LIMITED (NPV) Analysis For This Stock

Published on Sunday Oct 24 2010

Special Note* This is not to be taken as Financial advice
Independent Analysis reveals a NPV of $3.29 per share at a 12% discount rate

Based on following assumptions

- The basket price of Lynas's REE remains at US$50/t until the end of 2012, by which time the light REE fall in price by 20% and remain at this price until the end of the project. It is assumed that heavy REE remain at the same price for the life of the project.

- The company has 17,490,000 tonnes of reserves at an average grade of 8.1%. This is derived from the Duncan Deposit (7.6m tonnes at 4.8%) and the Central Lanthanide Deposit (9.88m tonnes at 10.7%)

- The AUD/USD exchange rate is 1:1 until the end of 2012, by which time it remains at 0.80AUD/USD for the remainder of the mine life

- Production is 11K tonnes p.a, increasing to 22K tonnes p.a. by mid 2014

- Phase 2 expansion costs $120m and is entirely debt funded at a 10% interest rate

- Mine costs are $7.70/t, increasing by 2.5% p.a.

- Royalties are 5% ad volorum

- There are 1.65b shares on issue for the life of the project

- I have not considered the impact of LYC's holding of NTU or any other potential acquisitions

- LYC will have to pay corporate income tax in Australia based on the 'arm's length price' of the concentrate it ships to Malaysia. Determining the arm's length price for rare earth concentrate is quite difficult, given that the market is dominated by China. As such, I have not considered Australian corporate tax in my calculations. Presumably the company will have carried forward losses anyway

- LYC has a 10 year tax holiday in Malaysia. I have not considered what tax would be payable after this period. At any rate, the Present Value cost of this tax would be minimal.

- Corporate overheads are $5m p.a.

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